Global markets plunge as China tumbles 8.5%

BEIJING — Wall Street followed global markets lower Monday with the Dow plunging as much as 1,089 points at the open as China's slowing economy rattled investors from Shanghai to Frankfurt.

The sell-off Monday began once again in China as the Shanghai composite index fell over 8.5% to 3,209.91.

The Chinese benchmark has now lost all of the gains from its meteoric rise earlier in the year, but is still up 43% from a year ago.

Investors are worried about the worldwide impact as the world's second largest economy cools off. The slide came despite market boosting measures announced by Beijing over the weekend.

On Sunday, China’s Sate Council announced it would allow its main state pension fund to invest in the stock market for the first time. The fund holds $548 billion — 30% of which can be invested under new rules.

However, the move did not appear sufficient to offset negative sentiment caused by a poor earnings season and fears that China’s factory output is slowing.

“The Chinese economy is slowing and the stock market is the barometer of the economy,” said Xia Zhengzhou Beijing-based Kaiyuan Securities.

"There were expectations of some sort of action from the Chinese central bank overnight and markets are likely to remain on edge for some action, either in the form of a rate cut or a cut in the reserve ratio for banks," said Simon Smith, an economist at online currency broker FxPro, in an email.

Referring to recent market volatility in Shanghai, analysts at Deutsche Bank said that Chinese shares appear to be "completing a full three-wave bubble unwind."

Contributing: Jane Onyanga-Omara in London and Kim Hjelmgaard in Berlin